US Dollar Index: Bulls regain the upper hand around 107.50

• DXY leaves behind two consecutive daily pullbacks.
• US yields give away part of the recent gains on Monday.
• Fed’s Williams will speak later ahead of a 3m/6m Bills auctions.

The greenback, in terms of the US Dollar Index (DXY), leaves behind two daily drops and regains upside momentum past the 107.00 mark at the beginning of the week.

US Dollar Index looks stronger post-Payrolls

The index regains the area north of the 107.00 yardstick with conviction during the European morning on Monday, as market participants continue to digest the upbeat results from Friday’s Nonfarm Payrolls for the month of June (+372K jobs).

Indeed, the solid performance of the labour market during the previous month seems to have poured cold water over the likelihood of a US recession in the next months, giving the Fed green light to maintain its aggressive normalization process.

So far, and according to CME Group’s FedWatch Tool, the probability of a 75 bps rate hike at the July 27 meeting is now at 93%, from around 9% a month ago.

In the US docket, a 3-month and 6-month Bill Auctions are due later seconded by the speech by NY Fed J.Williams (permanent voter, centrist).

What to look for around USD

The index regains the initiative and fades the recent technical correction after climbing to nearly 2-decade highs around 107.80 during last week, all against the backdrop of further deterioration in the sentiment surrounding the risk complex in response to rising recession talks.

Further support for the dollar is expected to come from the Fed’s divergence vs. most of its G10 peers (especially the ECB) in combination with bouts of geopolitical effervescence and the re-emergence of the risk aversion among investors. On the flip side, market chatter of a potential US recession could temporarily undermine the uptrend trajectory of the dollar somewhat.

Key events in the US this week: MBA Mortgage Applications, Inflation Rate, Fed Beige Book (Wednesday) – Producer Prices, Initial Claims (Thursday) – Retail Sales, Industrial Production, Flash Consumer Sentiment, Business Inventories (Friday).

Eminent issues on the back boiler: Hard/soft/softish? landing of the US economy. Escalating geopolitical effervescence vs. Russia and China. Fed’s more aggressive rate path this year and 2023. US-China trade conflict. Future of Biden’s Build Back Better plan.

US Dollar Index relevant levels

Now, the index is up 0.62% at 107.56 and a break above 107.78 (2022 high July 6) would expose 108.00 (round level) and then 108.74 (monthly high October 2002). On the flip side, the next support aligns at 103.67 (weekly low June 27) seconded by 103.41 (weekly low June 16) and finally 101.29 (monthly low May 30).